Norges Bank

Working Paper

Econometric inflation targeting

Author:
Gunnar Bårdsen, Eilev S. Jansen and Ragnar Nymoen
Series:
Working Paper
Number:
5/1999

Abstract:

Inflation targeting makes the Central Bank's conditional inflation forecast the operational target for monetary policy. A minimum system for inflation forecasting is a wage-price sub- system supplemented with equations that capture the links between policy instruments (interest rate, exchange rate) and the explanatory variables of the sub-system. Empirically, the authors model the long-run properties and derive a congruent and parsimonious dynamic model for wages and prices in Norway. The exogeneity assumptions underlying such an approach are tested via marginal models for the conditioning variables. The paper examine the suitability of the full system for inflation forecasting and demonstrate model responses to changes in monetary instruments.

JEL Classification: C3, C5, E3, E5, J3.
Keywords: Inflation targeting, monetary policy, wages and prices, cointegration, dynamic modelling.

Norges Bank’s working papers present research projects and reports that are generally not in their final form. Other analyses by Norges Bank’s economists are also included in the series. The views and conclusions in these documents are those of the authors.

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ISSN 1502-8190 (online)

Published 4 April 1999 12:11
Published 4 April 1999 12:11